The study examined the relationship between non-performing loans and Deposit Money Banks’
performance in Nigeria. The study adopted non-performing loans, lending rate and loan-to-deposit
ratio as the explanatory variables while return on equity served as the dependent variable. The
study adopted an aggregate approach by employing the Pooled Ordinary Least Squares (POLS)
technique and investigated the effect of non-performing loans on the financial performance of two
Deposit Money Banks (DMBs) for the period 2005 to 2015. Findings revealed that both non-performing loans and loan-to-deposit ratio have significant impact on DMBs performance in
Nigeria while lending rate has no significant effect on the performance of DMBs in Nigeria. The
study recommends that the Deposit Money Banks should sustain the ongoing policy of publishing
the names of loan defaulters in at least two national newspapers in order to curb the rising incidence
of non-performing loans and enhance the financial performance of the DMBs in Nigeria.
